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Entry Deterrence in Durable-Goods Monopoly

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Author Info
Hoppe, H.C.
Lee, I.H.
Abstract

There are industries that tend to remain monopolized, with successive generations of a good being introduced by an incumbent monopolist. This paper investigates the tendency of persistent leadership in durable goods industry. In particular it explores the implications of the durability of a good on the pricing and innovation behavior of both the incumbent monopolist and a potential entrant. It is shown that the durability of the good either acts as an entry barrier itself or creates an opportunity for the incumbent firm to deter entry by limit pricing. Moreover, we demonstrate that entry deterrence by limit pricing may cause underinvestment in innovation.

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Publisher Info
Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 0001.

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Date of creation: 01 Jan 2000
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Handle: RePEc:stn:sotoec:0001

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  1. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-48, September. [Downloadable!] (restricted)
    Other versions:
  2. Sam Bucovetsky & John Chilton, 1986. "Concurrent Renting and Selling in a Durable-Goods Monopoly under Threat of Entry," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 261-275, Summer. [Downloadable!] (restricted)
  3. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March. [Downloadable!] (restricted)
  4. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Blackwell Publishing, vol. 40(2), pages 229-31, June. [Downloadable!] (restricted)
  5. Kenneth L. Judd, 1985. "Credible Spatial Preemption," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 153-166, Summer. [Downloadable!] (restricted)
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  6. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April. [Downloadable!] (restricted)
  7. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  8. Drew Fudenberg & Jean Tirole, 1999. "Pricing Under the Threat of Entry by a Sole Supplier of a Network Good," Harvard Institute of Economic Research Working Papers 1873, Harvard - Institute of Economic Research.
  9. Carlton, Dennis W & Gertner, Robert, 1989. "Market Power and Mergers in Durable-Good Industries," Journal of Law & Economics, University of Chicago Press, vol. 32(2), pages S203-26, October.
  10. Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February. [Downloadable!] (restricted)
  11. Lee, In Ho & Lee, Jonghwa, 1998. "A Theory of Economic Obsolescence," Journal of Industrial Economics, Blackwell Publishing, vol. 46(3), pages 383-401, September. [Downloadable!] (restricted)
  12. Drew Fudenberg & Jean Tirole, 1998. "Upgrades, Tradeins, and Buybacks," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 235-258, Summer. [Downloadable!] (restricted)
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  13. Bulow, Jeremy, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 729-49, November. [Downloadable!] (restricted)
  14. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc. [Downloadable!]
  15. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June. [Downloadable!] (restricted)
  16. Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Blackwell Publishing, vol. 40(1), pages 55-83, March. [Downloadable!] (restricted)
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